Alternative to Moody's, Fitch, S&amp;P's in the works

A European credit rating agency might be launched as early as spring this year after criticism of Moody's, Fitch, and Standard & Poor's has grown ever louder during the eurozone crisis, according to German press agency dpa.

14.03.2012

(CS) A European credit rating agency might be launched as early as spring this year after criticism of Moody's, Fitch, and Standard & Poor's has grown ever louder during the eurozone crisis, according to German press agency dpa.

While no contracts have been signed, negotiations are ongoing to gain investors for the project. Some 30 investors are being approached for funds worth 300 million euros to kick-start the European agency.

Markus Krall, associate of Roland Berger Consultancy said to business paper “Euro am Sonntag” that it was planned for the first contracts to be signed in spring 2012 in order to establish a privately financed and not-for-profit credit rating agency, located in the Netherlands.

The first country rating could be expected towards the end of the year, while ratings for individual banks could be issued early 2013. However, it could take up to two years for the ratings agency to be fully established and operational.

The American ratings agencies, with Moody's, S&P's and Fitch at the helm, have caused controversy over the past months, for example with the accidental downgrading of France in an email sent to clients, or the continual downgrading of banks and eurozone countries while reforms and debates are underway.

In October last year, the Financial Times Germany reported that EU commissioner Michel Barnier wanted to scrap rating agencies altogether. A slimmed-down version of this proposal calling for less dependency on rating agencies was discussed in November.

However, a European alternative supported by the EU was not seen as a viable solution for lack of independence.

The rating agency envisioned by Roland Berger Consultancy will not be state supported, said Krall to German paper “Die Welt” so as not to endanger the independence of the institution.

Despite all the criticism of the ratings agencies, Luxembourg finance minister Luc Frieden warned at a recent British Chamber of Commerce event that the current problems wouldn't simply disappear with a European agency. While other agencies would improve the system, offering competition, Frieden said it was simplistic to blame the agencies for ongoing issues.